Environment & Poverty Times No. 5

Payout from the biosphere stock exchange

By Marianne Fernagut, GRID-Arendal

A community of Himalayan forest dwellers, after two years of intensive work learning environmental concepts and negotiation skills, succeeded in getting payments of USD 54,000 per year from the local hydropower company for environmental services that the community maintained by adjusting their agricultural practices; thereby, protecting the water supply for the hydropower plant and increasing the company’s profits. This activity is known as a “Payment for Ecosystem Services” programme.

Such payments for environmental services can be seen as similar to the “polluter pays principle”, but in this case, instead of people being punished for doing harm to the environment, they are rewarded for following good practices. For the rural poor, this could generate additional income and improved food security as well as the protection and enhancement of global, regional or local ecosystems.

Ecosystems provide a vital range of goods and services to humankind including clean drinking water, waste decomposition and the sequestration of carbon. People and companies rely on these goods and services – not just for ensuring climate stability but also for raw materials and a large amount of production processes.

But changes in the world’s climate has been brought about to a large extent by humankind’s own activities. Furthermore, population growth, rapid economic development and recently, an ever-expanding demand for biofuels, are putting these ecosystem services under increasing pressure throughout the world.

One of the critical factors causing environmental degradation is the widely held idea that many of nature’s services are free – no one owns them or is rewarded for them and therefore people have little incentive to protect such ecosystems. In addition, policies and decisions are often based more on short-term gains and immediate financial returns – the primary concern is to market as many goods as possible with little attention being paid to the long-term health of ecosystems and their services.

Land managers could play an important role in improving the environment, but they need incentives to do so. Putting in place a system to ensure payments for environmental services is one way, among many, of encouraging the adoption of improved agricultural and other land use practices.

While payments for ecosystem services programmes have seen explosive growth over the last decade, as both conservation and development experts have promoted their use, they are not a panacea for the all the world’s problems. It is an environmental conservation tool in the first place. To benefit the poor, these programmes need to be designed carefully. This requires a regulatory framework to determine who is paid for what, and at what cost, and to maintain which ecosystem service. Payment for Ecosystem Services programmes also need a properly administered monitoring system to ensure delivery of environmental services.

But with the global carbon market alone already trading about EUR 40.5 billion worth of carbon credits in 2007, despite its relative infancy, payments for ecosystem services provide an enormous potential for communities to be paid for maintaining ecosystem services.